Mortgage Q&A: What are Points?

If you are looking at purchasing a new house, or considering refinancing your current dwelling, you probably have got a number of questions. One of the common inquiries affects mortgage banker terminology. One of these terms is "points". You are often given the option of whether or not you desire to pay "points" on your loan.

At first glance, you may immediately make up one's mind you make not desire to pay points, as your initial down payment will be higher. However, once you understand what a point is, you may desire to reconsider your first impression.

A point is 1% of the sum loan amount, and paying a point will reduce your interest rate throughout the full life of your loan. This volition save you money throughout the whole clip you have got your mortgage. In other words, you can either pay a point now, or pay that amount plus the interest on it later. Either way, you will pay eventually.

Before deciding whether or not to pay points on your mortgage, inquire yourself how long you be after to remain in your house. If you are planning to travel or refinance within the adjacent four or five years, you may not salvage any money by paying points. If you are going to dwell in your house for a long clip (and not refinance), points are most likely a good option for you.

When comparing rates from different lenders, be careful to look closely at exactly what rates you are getting, and how many points you have got to pay to get those rates. Choose wisely based on how much money you have, how long you be after to remain in your house, and how much interest you desire to pay long-term.